Negotiable instrument

Negotiable instrument


Negotiable instrument

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A negotiable instrument is a financial document that guarantees direct payment of a detailed amount of money, either on demand with the payers name on it. It is a document that consists of contract promising money payment without any condition that may be paid on a certain date or anytime. This document could be meaning differently depending on which ever law it is being applied for instance bills of exchange, promissory notes, bank checks/notes, certificate of deposits and cheques (Cocker, 2001).

In this article a single party promises the other to give money or goods to another party who is named as the bearer. For instance a check that has been written under a person’s bank account is a negotiable instrument. They are used by business and are therefore known as commercial papers. When an instrument is being negotiated it means the possession can be transferred either voluntarily or involuntarily by the issuer to another person who will then become the holder. When the instrument is to be paid to the identified person, then the negotiation will require a transfer of possession as well as its endorsement by that current holder. On the other hand, when it is payable to the bearer, it can only be negotiated through the transfer of possession.

This paper studies a journal article case of a negotiable instrument being transferred to a third party. The case involves (Swift v. Tyson) where Swift has a legal dispute of negotiable instruments over the law. The issue was whether the bearer could have assigned the bill of exchange to a third party who would have later collected on the obligation. This bill of exchange was drawn in New York and a third party thus the assignee presented it for payment and it was denied. The third party was not a New York resident but he sued in New York for payment. The law held that the bill of exchange was not to be assigned and the judge ruled consequently. The rulings caused implications to the national economy. When on appeal the Supreme Court over tuned the ruling through interpretation of the federal rules decision act section 34 of the judiciary act of 1789 (1 Stat. 73). Initially the law provided that laws from several states could be regarded as rules of decision in trials at common law in United States courts where they applied.

The doctrine of Swift v. Tyson contributes to the development of national economy and encouraged multistate transactions. Businesses were now able to assign commercial papers without fear that a state would nullify their assignment. Most got furious about the overturning of the ruling by the federal common law. The doctrine of Swift led to situations which the substantive laws were useful to litigants and was determined by the fortuity of their residence. The two cases had differed in legal rights since the plaintiff and the defendant were not from the same states. During a drastic shift from Swift, the federal district courts occasionally pass on questions to state supreme courts, to ask for a ruling on what the state law is on a particular subject (Swift v. Tyson).



Coker, C. (2001). Steamfitters Local Union No. 420 Welfare Fund v. Philip Morris: Is Swift v.

Tyson Dead?” American Journal of Trial Advocacy, 420 (25).

“Swift v. Tyson.” West’s Encyclopedia of American Law. 2005. 3 Dec. 2014 <>.